15 March 2015

Information has come to FBME Limited that the Republic of Cyprus at the Arbitral tribunal at the ICC in Paris, are seeking to have the Cyprus branch of FBME Bank closed on the grounds that no buyers for the branch have been found. In other words, because the Resolution measure foisted on the branch by the CBC last July hasn’t worked they want to withdraw the FBME licence. They add that they have to do this now because closure would trigger the deposit protection insurance and that the FBME funds held by the CBC are at a level (EUR 158 million) that will enable them to make these insurance payments.

What they appear to be really saying is that due to the CBC’s own incompetence last July they feel justified in creating further damage to FBME and its clients now. They were told on many occasions last year that the Resolution Decree was inappropriate and probably illegal as applied to FBME Bank, but they now want to end this episode by destroying the branch.

The CBC also thinks it can use FBME Bank depositors’ money for deposit protection insurance. It can’t. The deposit protection scheme in Cyprus operates under a formal piece of legislation, called the Laws on the Establishment and Operation of Capital Protection and Resolution of Credit and Other Institutions Scheme of 2013. It is a mutual instrument funded by banks (including FBME) and is designed to protect depositors. FBME paid promptly and in full its annual contributions throughout its participation in the scheme, as should have all institutions both domestic and foreign in Cyprus. By definition the deposit protection scheme is triggered when a bank fails and is not funded by the assets of the failed bank.

FBME has neither failed nor is it in danger of doing so. FBME has deposits of over EUR 1.5 billion, of which the CBC currently holds EUR 158 million. The branch is 103.5% liquid, meaning it can pay backs all its depositors without trouble so there is no need to trigger the deposit protection scheme.

It is a useful admission by the CBC that it got it wrong last summer, but the way to put things right is not to inflict more harm. There are plenty of far better options both for depositors, the Bank and for the reputation of Cyprus than the one the CBC now proposes. The CBC knows these facts full well so why is it really making these assertions? There may be reasons closer to home.

In the past few days, the Cyprus Parliament has held hearings into the actions and motivations of the CBC in respect of the resolution of the defunct Laiki Bank and its legal case against its former Chairman. The Governor of the CBC and its Directors have been carpeted by a committee of MPs, and the Attorney General of the Republic of Cyprus has announced the launch of a criminal investigation into the matter. There have been calls from MPs and the Cyprus media for resignations in high positions.

The CBC is truly desperate. Not only is it faced with repercussions which could bring actions for damages of hundreds of millions of euros, but it is also beset by the huge unrelated crisis regarding Laiki, that has engulfed the Governor and the Board of Directors of the CBC, the Administrator and members of the Resolution Authority.

One resignation that has been already submitted is by Stelios Kiliaris, one of the CBC’s two Executive Directors and a member of the Board of Directors. In stepping down he was fiercely critical of the Governor, other members of the Board and management of the institution, making a number of accusations including that of incompetence.

The struggle will continue.